SECTOR REPORT: PHARMACEUTICALS

By Finance Club,JBIMS

TABLE OF CONTENTS

Introduction 2
Financial Ratios Important for Pharmaceuticals 4
Industry
Pharmaceutical Policy 5
Opportunities and Challenges 6
Government Role 8
FDI Policy 9
Key Players 10
Medical Device Clusters in India 15
Recent News 15
PESTEL Analysis 16
References 17

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Introduction
India is the largest provider of generic drugs globally. Indian pharmaceutical sector
industry supplies over 50 per cent of global demand for various vaccines, 40 per cent of
generic demand in the US and 25 per cent of all medicine in UK.
India enjoys an important position in the global pharmaceuticals sector. The country
also has a large pool of scientists and engineers who have the potential to steer the
industry ahead to an even higher level. Presently over 80 per cent of the antiretroviral
drugs used globally to combat AIDS (Acquired Immune Deficiency Syndrome) are
supplied by Indian pharmaceutical firms.

Structure of Pharmaceuticals Sector in India

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Market Size
The pharmaceutical sector was valued at US$ 33 billion in 2017. The country’s
pharmaceutical industry is expected to expand at a CAGR of 22.4 per cent over 2015–
20 to reach US$ 55 billion. India’s pharmaceutical exports stood at US$ 17.27 billion in
FY18 and have reached US$ 19.14 billion in FY19. Pharmaceutical exports include bulk
drugs, intermediates, drug formulations, biologicals, Ayush & herbal products and
surgicals.

Future Potential
From a market size of USD 12.6 billion in 2009, the Indian pharmaceutical market will
grow to USD 55 billion by 2020, with the potential to reach USD 70 billion in an
aggressive growth scenario. In a pessimistic scenario characterized by regulatory
controls and economic slowdown, the market will be depressed and is expected to
reach USD 35 billion.

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Financial Ratios Important for Pharmaceuticals
Industry
Return on Research Capital Ratio
The return on research capital ratio (RORC) is a fundamental measure that reveals the
gross profit that a company realizes from each dollar of R&D expenditures. The ratio is
calculated by dividing the current year's gross profit by the previous year's total R&D
expenditures. Examining the RORC gives investors an idea of how well the company is
managing to translate the previous year's R&D expenses into current year revenues.

Profitability Ratios
Operating margin, the basic measure of revenues minus production costs, indicates
how well the company manages costs, and net margin is the bottom line indicator of
profit realized after deducting all of a company's expenses, including taxes and interest.

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Return on Equity
The importance of ROE in analyzing pharmaceutical companies stems from the basic
fact that pharmaceutical companies must expend massive amounts of capital to bring
their products to market. Therefore, how efficiently they employ the capital that equity
investors provide is indeed a key indicator of the effectiveness of the company's
management and of the company's ultimate profitability.

Pharmaceutical Policy

Drugs Price Control Order (DPCO)

1. Providing abundant quantity, at reasonable prices of essential and lifesaving and

medicines of good quality.
2. Strengthening the quality control system over drugs and medicines production and
promoting the rational use of drugs in the country.
3. Creating an environment friendly to channelizing new investment into the
pharmaceutical industry with an objective to boost cost-effective production with
economic sizes and introducing new technologies and new drugs.

Intellectual Property Rights (IPR)

The Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS)

provides for minimum norms and standards in respect of the following categories of
intellectual property rights: -
1. Copyrights and related rights
2. Trademarks
3. Geographical Indications
4. Industrial Designs
5. Patents
6. Protection of undisclosed information (trade secrets)

National Pharmaceuticals Pricing Policy 2012

Objective- To put in place a regulatory framework for pricing of drugs to ensure

availability of required medicines – “essential medicines” – at reasonable prices, even
while providing sufficient opportunity for innovation and competition to support the
growth of industry.
1. Making essential drugs accessible at affordable prices to the common masses
2. Providing a longer term stable policy environment for the pharmaceutical sector
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3. Making India sufficiently self-reliant in end to end indigenous drug manufacturing
4. Ensuring world class quality of drugs for domestic consumption & exports
5. Creating an environment for R&D to produce innovator drugs
6. Ensuring growth and development of the Indian Pharma Industry.

Opportunities
1. Supporting state-sponsored health coverage programs and a focus on chronic
healthcare could enable universal drug access.
2. Pursuing opportunities in newer product classes such as biosimilars, gene therapy
and specialty drugs.
3. Capitalizing on its rich demographic dividend – India has a large skilled, yet cost-
efficient workforce.
4. A footprint in underpenetrated international markets could increase exports.
Leverage India's strengths in IT and ITES – optimize new avenues such as OTC.

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Growth Opportunities
The Indian Medical Device market contributes to 4% of the Indian healthcare market
which is pegged at USD 96.7 bn (INR 6.29 Lakh Crores). India is one of the top 20
global medical device markets and the 4th largest medical device market in Asia.
Moreover, the market is expected to record substantial growth in coming years.
Prominent factors driving growth in
the demand for medical devices in India are:
1. Growing Population - India’s population was 1,210 mn in 2011, and is expected to
touch 1360mn in 2021. The population growth is a key factor in driving the demand for
health care devices.
2. Ageing Population - The share of aged population (65 years) was 5.3% in 2011 and
this ratio is expected to increase to 6% by 2021. This increasing aged population
segment seeks improved healthcare services, resulting in demand for medical devices.
3. Increasing Disease Burden of Chronic Diseases - Non-communicable diseases like
cardio vascular diseases, cancer, diabetes, and other, are expected to comprise more
than 75% of India’s disease burden by 2025, vis a vis 45% in 2010. The chronic
diseases segment would drive the demand for healthcare services with basic and
advanced medical devices and technology.
4. Increasing Health Insurance Penetration - The health insurance has started showing
increased penetration in India over the last one decade. Health insurance market was
estimated at USD3.9bn in FY15 and grew at a phenomenal CAGR of 22 per cent from
FY08 to FY15 and this is expected to reach over USD 8 bn in FY 2020, and close to
USD 20 bn in FY 2025.

Challenges
1. India is yet to achieve universal healthcare access.
2. Lack of a stable pricing and policy environment favorable for long-term
aainvestment decisions.
3. Increased scrutiny in quality compliance when supplying to international
aamarkets.
4. Low share of India in World Pharmaceutical Production (1.2% of world production but
having 16.1% of world’s population).
5. Very low level of Biotechnology in India and also for New Drug Discovery Systems.
6. Lack of experience in International Trade.
7. Lack of capabilities in the innovation space.

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Notable Trends in Indian Pharmaceuticals Sector

Government Role
The Indian government and its regulatory bodies have a bigger-than-ever role to play in
driving the next wave of growth for the pharmaceutical industry.
The government has already launched some initiatives that could strengthen the
industry:
1. Increased budgetary allocations for healthcare to boost the domestic market:
Budgetary allocations for the Union Ministry of Health and Family Welfare grew by 18.6
percent over five years (total health budget allocated to the Ministry for FY 2016 to
2020). The Ayushman Bharat Yojana launched in September 2018 aimed at providing
affordable healthcare to over 50 crore beneficiaries (about 40 percent of India’s
population).

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2. Increased focus on attracting pharma investment: Governments in states such as
Andhra Pradesh and Uttar Pradesh have announced their intentions of setting up
pharma parks. This is a welcome move and is expected to provide a competitive
advantage to Indian pharmaceutical companies in the global arena.

In addition to the above initiatives, the government could aim to increase expenditure on
healthcare from about 1.2 percent to 2.5 percent of GDP in the next 5 years, and about
5 percent by 2030, in line with the developed European and North American economies.

PHARMACEUTICALS PROMOTION DEVELOPMENT SCHEME (PPDS)

The Objective of Pharmaceuticals Promotion Development Scheme(PPDS) is

promotion,development and export promotion in Pharmaceutical sector by extending
financial support for conduct of seminars, conferences, exhibitions, mounting
delegations to and from India
1. Conduct Training/knowledge improvement programs/activities on issues/subjects
relevant to growth of pharmaceutical industry. An indicative list of subject is as under
2. Organize Summits, Convention, Exhibitions, Pharmacy week, meetings etc. in India
and abroad and produce promotional materials like films, displays etc.
3. Conduct research studies, sector reports etc.
4. Purchase books, quality standards, pharmacopoeias, magazines, directories,
software for developing information data banks, developing e-learning modules etc.

FDI Policy:
1. 100% FDI has been allowed through automatic route for Greenfield
ffffpharmaceuticals projects
2. For Brownfield pharmaceuticals projects, FDI has been allowed up to 74%
ggthrough automatic route and beyond that through government approval.

USA, Europe and Japan are the key source countries for FDI in medical devices. The
equipment and instruments,consumables and implants segments have attracted the
most FDI.
The Indian medical device sector has received an investment of USD 505 mn from 27
M&A transactions and around 43 venture capital / private equity investment in last five
years. The Equipment and Instruments and Consumables segments attracted the
majority of M&A and PE investments.

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Strategies adopted by Key Players

Key Players
1. Sun Pharmaceutical Industries Limited
2. Aurobindo Pharma Limited
3. Lupin Limited
4. Cipla Limited
5. Dr. Reddy’s Laboratories
6. Cadila Healthcare Limited
7. Intas Pharmaceuticals Limited
8. Glenmark Pharma Limited
9. Torrent Pharmaceuticals Limited
10. ManKind Pharma Limited
11. Biocon Limited
12. Piramal Enterprises Limited

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1.Sun Pharmaceutical Industries Limited is a Mumbai-based multinational company.
Established by Mr. Dilip Shanghvi in 1983.
Dilip Shanghvi,MD

2. Aurobindo Pharma: Hyderabad-based Company established in 1986. Govindarajan

Narayanan,MD

3. Lupin:Established by Desh Bandhu Gupta in 1968.

Vinita D. Gupta, Chief Executive Officer

4. Cipla: The Chemical, Industrial & Pharmaceutical Laboratories is a Mumbai based

company.
Founded by Khwaja Abdul Hamied way back in 1935.
Umang Vohra,CEO

5. Dr Reddys Labs:A Hyderabad based company Founded by Anji Reddy in 1984 .

Erez Israeli,CEO

6. Cadila Healthcare:Headquartered in Ahmedabad,founded by Ramanbhai Patel in

1952. Pankaj Patel,MD

7. Biocon: Headquartered in Bengaluru Founded by Kiran Mazumdar-Shaw in 1978

Kiran Mazumdar-Shaw,MD

8. Glenmark: Headquartered in Mumbai,Founded by Gracias Saldanha in 1977.

Saldanha named the company after his two sons Glen and Mark. Glenn Mario
Saldanha,CEO

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13
Medical Device Clusters in India

Recent News
1. Pharma exports to US register second-highest growth in last 5 years.
2. Telangana govt eyes $100-billion life sciences, pharma industry.
3. Dr Reddy's to sell Neurology branded products to Usher-Smith.
4. US pharma sector demands keeping India in patent violator list.
5. Indian pharma exports hit $19.14 bn, report double-digit growth after 3 yrs.
6. US-China trade war opens up big opportunity for India pharma sector,says Dr Reddy’s
GV Prasad.

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15
References
https://www.ibef.org/blogs/india-pharma-outlook-and-brand-india
https://drive.google.com/file/d/0B-Tv7_upCKANT3kyS1pjbkRjQ2M/view
https://www.investopedia.com/articles/financial-analysis/090616/key-financial-ratios-
pharmaceutical-companies.asp
http://www.pharmaceutical-drug-manufacturers.com/pharmaceutical-
policies/intellectual-property-right.html
https://www.marketresearchreports.com/blog/2019/04/11/top-15-pharma-companies-
india
https://www.ibef.org/industry/pharmaceutical-india.aspx
https://www.livemint.com/companies/news/dr-reddy-s-to-sell-neurology-branded-
products-to-usher-smith-1560491317172.html
https://www.businesstoday.in/sectors/pharma/pharma-exports-to-us-register-second-
highest-growth-in-last-5-years/story/390302.html
https://www.livemint.com/politics/policy/telangana-govt-eyes-100-billion-life-sciences-
pharma-industry-1562134788669.html
https://www.business-standard.com/article/companies/indian-pharma-exports-hit-19-14-
bn-report-double-digit-growth-after-3-yrs-119050201025_1.html
https://www.thehindubusinessline.com/news/us-china-trade-war-opens-up-big-
opportunity-for-india-pharma-sector-says-dr-reddys-gv-prasad/article30006303.ece
https://pharmaclub.in/top-15-pharmaceutical-companies-in-india/

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